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Wall Street Faces Choppy Waters as Treasury Yields Swing and Chip Stocks Plunge

Market Update - Daniel Ang The Accidental Trader Traders Academy International 13

Wall Street wrapped up a turbulent week on a somber note last Friday, with major U.S. stock indices, notably the Nasdaq, being hit hard by sinking chip stocks. Adding fuel to the selling fire was a strike initiated by the United Auto Workers union (UAW). While the sell-off wiped out the week’s gains for the S&P 500 and the Nasdaq, the Dow clung desperately to its slender weekly ascent.

Key Points:

  • Indices Performance: The tech-centric Nasdaq grappled with the downfall of chip stocks, plunging by 1.65% to 13,696.74. Meanwhile, the S&P 500 retracted by 1.18% to 4,452.13, effectively erasing its weekly advance. The Dow Jones Industrial Average, in contrast, merely edged downwards by 0.75% to 34,644.06.
  • Monetary Policy Insight: The much-anticipated Federal Reserve meeting scheduled between September 19th and 20th is predicted to uphold current interest rates. Despite the 525 basis points hike since March 2022, the consensus is leaning towards the culmination of the Fed’s aggressive rate hike series. Yet, Fed Chairman Jerome Powell’s remarks indicate potential hikes to tackle persistent inflation.
  • Currency Movements: The U.S. Dollar, despite its prolonged growth streak, faltered slightly by 0.08% to 105.32 last Friday, pressured by data indicating dwindling consumer sentiment. Concurrently, the Japanese Yen stumbled to its 10-month nadir, while the EUR/USD displayed resilience post the European Central Bank’s signal of capping interest rate hikes.
  • Commodities Outlook: Gold showcased strength, bolstered by a mix of a receding Dollar and geopolitical tensions. A notable uptick of 1% was observed, solidifying its position above the crucial $1,900/oz mark. Conversely, oil solidified its stance above $90 a barrel, invigorating speculations of a possible ascent towards the $100 mark.
  • Cryptocurrency Performance: Bitcoin, the foremost cryptocurrency, traded in the vicinity of $26,500 after reaching peaks near $26,917. Ethereum, its closest rival, ended the week slightly in the red, hovering around $1,630.66.

Wall Street’s landscape last Friday painted a grim picture, accentuated by the overarching influence of multiple adverse developments. Notably, chip stocks’ decline left an indelible mark on the Nasdaq’s performance. Additionally, actions by the United Auto Workers union exacerbated the market’s bearish tendencies. This resulted in a bleak scenario where both the S&P 500 and the Nasdaq surrendered their weekly gains, placing the Dow’s marginal gain in a vulnerable state.

The upcoming week remains eventful, with the European inflation data set for release and decisions regarding central bank interest rates looming large. Amid these pivotal financial events, the Federal Reserve’s interest rate stance assumes prominence. Market watchers believe that the cycle of rate hikes might have reached its zenith, signifying a halt in what has been termed as one of the most assertive monetary policy adjustments in recent history. However, the underlying apprehensions about the economy’s reaction to these elevated rates persist.

In the realm of currencies, the Dollar’s recent wane came as a surprise, especially given its consistent bullish run. This was particularly intriguing in the context of the Japanese Yen’s depreciation. The European Central Bank’s actions and subsequent indications about its interest rate trajectory reverberated through the markets, leading to oscillations in the EUR/USD pair.

Lastly, commodities like gold and oil are indicative of the current market’s volatility and geopolitical circumstances. Gold’s ascent, driven by both external pressures and economic indicators, draws attention. Meanwhile, the oil market’s bullish undertones underscore the mounting energy demands and broader market expectations.

Future Prospects:

Jerome H. Powell took office as chairman of the Board of Governors of the Federal Reserve System in February 2018. He was sworn in on May 23, 2022 for a second term as Chair ending May 15, 2026.

Given the confluence of events and indicators, investors remain cautiously optimistic. The upcoming FOMC policy meeting will undoubtedly cast its shadow on global markets. If Fed Chairman Powell leans hawkishly in his statements, it could induce further shifts in both equity and currency markets.

On the commodities front, the resilience of gold amidst turbulent times demonstrates its enduring safe-haven appeal. Oil’s bullish momentum will be under scrutiny, especially with concerns regarding supply and geopolitical tensions.

Lastly, the digital currency landscape, although volatile, showcases signs of maturing, with Bitcoin and Ethereum offering contrasting narratives.

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